Quick update. I did not manage to find anything regarding this issue so I have decided to develop exactly the same login module using Flash Builder 4 beta 2 (instead of Flex builder 3) utilizing Zend framework (instead of AMFPHP). Now I am getting sandbox violation error. It should be fairly easy (I hope) to solve it now. I will probably need to rearrange service configuration files (ini and gateway) to make it work. It is a pity that Flex 3 did not throw more helpful message, it would save me some time on redoing same app in new builder.
I have managed to sort out my issue. I had to use a crossdomain XML file to authorize calls within my domain.
That's the solution that worked for me:
1) executing code
when initializing Flex application
2) content of crossdomain.xml
<allow-access-from domain="*" />
The only strange thing is that error occurs only when using one PC with Windows 7 Pro (I checked Flash plugin versions and all my workstations have latest versions installed).
Anyway, I hope that above solution will help someone. I have spent considerable amount of time trying to sort it out:)